ishi

Yes, but interestingly, our change is almost a 100% increase.

Very interesting summary - thank you! My experience is by-and-large limited to the plans at my firm.

That is exactly my point. There are numerous articles out there indicating you can switch to the full yield curve without getting IRS approval, but the vast majority of the plans I've seen have already elected to use segment rates with a lookback, and DO NOT get the "free" change to the full yield curve without approval. Thank you for your quick reply!

There has been a lot of talk recently about some plans switching to use the full yield curve for funding purposes to save PBGC premiums, and enjoying an automatic IRS approval to do so. Is this really automatically approved for all plans/circumstances? §1.430(h)(2)-1(b) indicates to use segment rates for the month containing the valuation date. Alternately, under §1.430(h)(2)-1(e)(1) & (2) you can elect to use segment rates with up to a 4 month lookback. Most plan I've seen use segment rates with a lookback. §1.430(h)(2)-1(e)(1) further indicates "Any election in this paragraph (e) may be adopted for a plan year without obtaining the consent of the Commissioner, but, once adopted, that election will apply for that plan year and all future plan years and may be changed only with the consent of the Commissioner." So, it appears a plan that elected to use segment rates with a lookback does not get automatic approval to switch to the full yield curve under §1.430(h)(2)-1(e)(4). What am I missing here? Initially, I was always under the impression that you can have automatic approval to switch the full yield curve, but the analysis above seems to contradict that. Thanks in advance!

Wondering if there was any resolution to this situation. I have a similar situation involving an active participant receiving RMD payments from a DB plan. Participant started receiving RMD payments 4/1/2020 at the 415 comp limit, has accrued more benefits during 2020, and subsequently terminated 12/31/2020. The plan's formula accrued benefit exceeds the 415 comp limit at 12/31/2020, and the lump sum payable 1/1/2021 exceeds the 415 lump sum limit. Do these amounts need to be reduced to reflect the payments received during 2020? Is this truly a MASD situation?

I always thought 2.

Bumping this, as more people probably have looked at this since January.

I finally read the entire Notice, and I now believe remuneration for 2018 is the present value (as of 12/31/2018) of the 2018 accrual - plus - earnings (in this case interest) on the 1/1/2018 present value. As such, this approach now matches how I think the 990 Schedule J calculation should be done, and differs from the calculation for FICA purposes (which is only the present value of the 2018 accrual). Does anyone agree with this approach, or have additional thoughts?

Thanks. I was trying to leverage present values we already calculate and thought the present values determined for FICA purposes were better than those determined for 990 Schedule J purposes.

In thinking about a standard non-qualified SERP plan for a tax-exempt organization (a nonaccount balance plan), would the remuneration under Notice 2019-09 be the same as for FICA purposes? In general, it seems they would be the same. Thanks in advance!

The PBGC has a missing participant's program: https://www.pbgc.gov/prac/missing-participants-program

I read yesterday's announcement from the American Academy of Actuaries regarding the results of the voting on proposed bylaw changes, and it appears that the current leadership of the Academy is decisively petty. "The real art of conversation is not only to say the right thing at the right place, but to leave unsaid the wrong thing at the most tempting moment." - Dorothy Neville-Rolfe

I have a side question. Assume there are 2 different firms helping the client - the actuary responsible for the SB only and another firm responsible for the rest of the 5500. Which firm do you think has the ultimate responsibility to inform the client of their company intranet posting requirement? Said another way, if your client got in trouble by the DOL for not posting the information, which firm could be culpable?

I am looking at this currently as well. In my case, the plan document indicates that late retirement benefits begin the first of the month following DOT (if after NRD). The plan added RASD language later to "fix" the QJSA notice requirement. As far as I can tell, the document does not allow for a future ASD. As you imply, the regs are not as clear as we would like.

OK - I'm retracting my pronouncement from post #6. As John points out, the 401(a)(4) section does refer to compensation for testing purposes, and need not apply to compensation used for accrual purposes. Having spent more time researching, I am comfortable with freezing the average salary, but allowing benefit service to continue. The plan will need to be tested every year, comparing the actual accruals (using frozen salary) to the then current compensation, and hope for then best from a demographics perspective. Thanks again.

Thanks John and Andy. After some research, this type of design is NOT permitted. Regulation 1.401(a)(4)-3(e) defines rules relating to average compensation. Subsection (2)(i) further defines the allowable compensation history as "An employee's compensation history may begin at any time, but must be continuous, be no shorter than the averaging period, and end in the current plan year." (the averaging period is at least 3 years). The last part about ending in the current year is the death knell.

Thanks John. In my particular case, the plan has been closed for over 5 years, so no new entrants, and all actives have at least 5 years of salary for the average. I do not have much experience with 401(a)(4) testing (as most of my plans are safe harbor), but you bring up a good point. If the plan does need to be 401(a)(4) tested, would this design necessarily cause problems, or do the potential problems depend on the plan demographics? The client is foreign owned, and this type of design is permissible for the parent, hence the question. It is attractive to the client from an ASC expense perspective, since the PBO effectively becomes the ABO upon change, reducing the Interest Cost and loss amortization. I know a prospective career-average formula would provide similar results, but wanted to see if there was an immediate "NO" about freezing the average salary while letting the service continue to grow.

Consider a final average pay, defined benefit plan. Assume the benefit formula is 1% of 5-year average compensation, times years of credited service. A client wishes to freeze the average compensation portion of the formula (say as of March 31, 2015), but still allow participants to earn credited service. Is this permissible? The future formula would then be 1% of 5-year average compensation as of March 31, 2015, times years of credited service at subsequent termination of employment. Are there any other considerations? Thank you in advance for your help.

SoCal - thanks for confirming. Reverting the formula was not contemplated before the first change.

I'm looking for opinions on whether the following situation violates the 133 1/3% accrual rules of 411(b)(1): Final average pay plan has been around for awhile, providing 1.75% of FAP5 for each year of service. Plan amended 1/1/2010 to reduce future accruals (1.75% for each year of service up to 1/1/2010 plus 1% for each year of service after 1/1/2010 (proper 204(h) notice given)). Plan now wants to restore 1.75% piece effective for service after 1/1/2012 (i.e. amend the plan to provide 1.75% for each year of service up to 1/1/2010 plus 1% for each year of service after 1/1/2010 and before 1/1/2012 plus 1.75% for each year of service after 1/1/2012). Since the formula is constant for all future years, I believe the 133 1/3% accrual rule of 411(b)(1) is satisfied, but looking for other opinions. Thanks in advance.

Hello PAX - found this oldie-but-a-goodie that matches exactly with a current situation I find myself in. Did you ever resolve the issues in your original post? I'm asking specifically about widowed retirees with j&s benefits and spousal waiver issues similar to the ones you listed. I know this was a while ago, but any help you can provide will be greatly appreciated. Thanks,

The grandfathering you describe is the A+B approach, where A is the lump sum of the accrued benefit on the date of change using old assumption methodology, and B is the lump sum of the benefit earned after the date of change using new assumption methodology. Could you also use a "wear-away" grandfather, where the subsequent lump sum is the final accrued benefit using new assumption methodology, but not less than the lump sum of the accrued benefit on the date of change using old assumption methodology? In both cases, the lump sum assumptions are determined at the future date of distribution.

From 411(d)(3) .... "(3) Termination or partial termination; discontinuance of contributions Notwithstanding the provisions of subsection (a), a trust shall not constitute a qualified trust under section 401 (a) unless the plan of which such trust is a part provides that— (A) upon its termination or partial termination, or (B) in the case of a plan to which section 412 does not apply, upon complete discontinuance of contributions under the plan, the rights of all affected employees to benefits accrued to the date of such termination, partial termination, or discontinuance, to the extent funded as of such date, or the amounts credited to the employees’ accounts, are nonforfeitable. This paragraph shall not apply to benefits or contributions which, under provisions of the plan adopted pursuant to regulations prescribed by the Secretary to preclude the discrimination prohibited by section 401 (a)(4), may not be used for designated employees in the event of early termination of the plan. For purposes of this paragraph, in the case of the complete discontinuance of contributions under a profit-sharing or stock bonus plan, such plan shall be treated as having terminated on the day on which the plan administrator notifies the Secretary (in accordance with regulations) of the discontinuance. " Thus, under a partial plan termination, vesting of the affected participants is required TO THE EXTENT FUNDED. I take this to mean that vesting is granted to non-vested affected participants only if the plan's assets exceeds the Priority Category 5 plan termination liability. Is this a correct interpretation? If so, I would guess that in the current environment, not much extra vesting will be happening. Or said another way, if the assets are below the PC5 liability, who cares if a partial plan termination has occurred?

WDIK - can the final 5500 be extended through a 5558?

Notwithstanding AndyH and the pointy-eared one, I am surprised at the lack of comments on this post. I assumed this would have been a hot topic. I have a client that is about 70% funded on a PC5 basis that is currently close to a partial termination (17-18%), with more layoffs coming. I usually advise the client to consult legal counsel regarding whether a partial termination occurred or not, but why go through the trouble if there are no ramifications? What am I missing here?